by Jim Reilly
Managing Principal, Advisory Solutions

Spurred on by the overwhelming participation rates in the Bundled Payments for Care Improvement Initiative (BPCI) as well as their uncontested ability to impose a mandate on hospitals in selected areas through the Comprehensive Care for Joint Replacement program (CJR), CMS last week announced plans for a more extensive foray into the bundled payments arena. 

Following on the CJR model, CMS plans to “randomly select” 98 metropolitan statistical areas (MSAs) in which all hospitals who perform specifically designated cardiac services on Medicare fee-for-service patients will be included in the new reimbursement methodology along with expanding covered orthopedic surgeries for the existing 67 CJR MSAs. The list of mandatory services includes not only the procedures of open heart surgery (CABG) and surgical hip/femur fracture, but also the medical condition of acute myocardial infarction (AMI) which encompasses both medical management as well as intervention.

As with CJR and two of the four models in BPCI, hospitals will be required to manage care across the continuum as the proposed bundle includes not only all A and B services (hospital and physician) associated with the acute-care admission, but also a wide range of readmissions and post-acute care expenditures in the 90-day post-discharge timeframe.

Similar to CJR, the new mandatory bundling programs will consist of a target price that is a discounted blend of historical hospital-specific data as well as regional reimbursement data. In an effort to force hospitals to be as good as they can possibly be, the mix of participant-specific data and regional data will change over the projected five- year life of the project. By years four and five, providers will be held to meeting a completely regional Medicare spend amount—in other words, hospitals not only need to be better than they were in the past, they must also be better than their peers in a large region. 

Medicare will set a target price which is between 1.5 percent and 3 percent below its historical spend and then annually measure whether the hospital (and its physicians and post-acute providers) met that price or came in lower or higher. In cases where the expenditures exceed the target price, Medicare will seek repayment of the overage from the hospital (subject to a phased-in repayment methodology which ends up being capped at 20 percent of excess spend in years four and five). Similarly, savings that result in a Medicare spend below the target price will be shared with the hospital with an escalating cap up to the same 20 percent in years four and five.

As the programs will use a retrospective reconciliation-based analysis methodology, there will be no change to how hospitals, physicians, and post-acute care providers submit claims and are reimbursed by Medicare. (So physicians can relax—the hospital will not be holding any of your reimbursement.) 

Quality will play a large part in the determination of target prices as hospitals with demonstrated high quality will have more attractive target prices and will receive a greater portion of any savings below the target.

Using past bundled payment demonstrations such as the Acute Care Episode (ACE) Demonstration, as well as the success seen in the BPCI program, Medicare is building upon success in those with these latest mandatory efforts, and continuing its mantra of value over volume. Moreover, these new programs will force a larger number of hospitals to coordinate care with multiple providers, thereby resulting, CMS believes, in better patient care. 

One can almost hear the mournful sound of “Taps” being played for good ol’ fee-for-service medicine. Indeed these programs further the attempt to meet CMS’ stated goal of having 50 percent of traditional fee-for-service reimbursements transitioned to alternative payment model. The agency is already at 30 percent prior to the introduction of these new efforts. 

Those past bundling programs as well as BPCI and CJR all point to several key components for success that hospitals should start thinking about now in order to thrive in this new environment, even if they are not currently in a CJR MSA or one of the newly affected cardiac locales. The four major proven areas of focus are:

  • Physician engagement and economic alignment: No single effort is as important as physician engagement when it comes to making bundled payments a success. And while the feds taketh away in bundled payment programs (in the form of the required discount) they also giveth back by providing participants with OIG-issued waivers that enable gainsharing. What hospital wouldn’t like to take $1,500-2,000 per case out of its direct costs for orthopedic patients and another $2,000-$3,500 out of the 90-day post-acute spend?

    That’s what many of the current participating providers are experiencing through BPCI and CJR by economically aligning with its orthopedic surgeons through gainsharing models. Savings that can be shared with the physicians may be achieved in two ways: the reduction in Medicare’s spend which is shared with the hospital as well as realization of internal cost savings at the hospital level, e.g. having the surgeons work with the institution to obtain lower pricing and optimal utilization on implants, cement, pharma and other ancillary services.
  • Care plan redesign: As hospitals will be responsible for both acute and post-acute care management, the development of finely tuned care plans that span the continuum is a critical component for success. Physicians should be involved from the get-go in the development of these algorithms and the catch phrase (subject to clinical conditions, of course) should always be “Why not home?”
  • Post-acute care network: Creating a strong network of aligned post-acute care providers who will adhere to prescribed care plans is key to managing the portion of the bundle that a hospital typically has the least amount of control over. Similar to gainsharing with physicians, CMS also provides for sharing of savings and risk with post-acute providers if a hospital so desires.
  • Informed data analytics: Using Medicare-supplied claims data, as well as data available from hospital, physician practices and post-acute care providers that can be shared with caregivers to measure and manage performance, is crucial. Mining, organizing and benchmarking the data will highlight opportunities across the continuum. Presenting the information, along with the “how to” with front-line caregivers, will drive change, quality and efficiencies.

After the required comment period (during which members of the industry and public can voice their comments, concerns, objections and what have you to CMS), CMS will make any modifications to the proposed program rules that it feels are appropriate and then set a firm implementation date. At present, they have indicated that the new mandatory bundling efforts will begin on July 1, 2017. 

Stay tuned for more information as this process further refines itself.

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About the author. Jim Reilly’s career includes more than 20 years’ experience in health care consulting with health systems and physician practices nationwide. His experience includes hospital/physician alignment, bundled payments, strategic planning, new service development, and market growth planning and implementation. He has led more than 300 projects during his consulting career and is a national speaker with organizations such as the American College of Healthcare Executives and the American Medical Group Association on hospital/physician alignment models.

Published: August 12, 2016